Sunday, May 16, 2010

Expensive computerisation projects

A knowledgeable insider told me that a few hospitals in Singapore each spent tens of million dollars to computerised their operations, after engaging big name consultancy firms. They abandoned their projects due to difficulty in implementation and wrote off their investments. It was very wasteful, and probably explains why hospital bills are expensive.

He said that this type of practice of paying a lot of money to consultants for computerisation projects happen in many government agencies as well.

I am not able to verify this information. I hope to get get confirmation from people who work in these places and are able to share their information.

Tan Kin Lian

14 comments:

Anonymous said...

This may be how govt stimulate the local economy. Create many types of ministry/stat board/GLC projects and outsource them to private companies. These companies will create employment for Singapore residents (citizens/PRs) and foreigners. Of course it must be cheaper, better faster so guess who the majority of these jobs go to? And guess why we need so many foreign "talents"?

Never mind what bad side effects eg abandoned projects, lower productivity, higher cost to end users etc these may cause.

This is one aspect of why the govt is regarded as a major player of our economy, including creating employment, directly or indirectly and stimulating GDP growth.

We used to be a leading manufacturing centre for MNCs but this spot has been lost to China, now regarded as the world's factory.

And also why casinos need to come into the picture as well.

Parka said...

Here's a recent case, though not from Singapore. But this sort of examples happen everywhere.

NY Pays 230 "Consultants" $722M Per Year for Computer Project 7 Years Behind Schedule


Reader comments

The problem with these sort of consulting work is, there's no consequence for failure, or maybe because I haven't heard anything bad about people who failed to deliver.

Basically, you're spending money, not personal money, but company money. It's good if the whole thing works out, not so bad even if it doesn't - just write it off.

Tan Kin Lian said...

Since the consultant is not able to guarantee success, there is no need to pay such large sums of money for consultancy services.

Many consulting firms engage graduates from business schools without the working experience, train them on their methodology, and charge extremely high fees for these newbies.

They make a lot of money on the consulting fees, but are not able to deliver the results.

The clients are usually too embarrassed and reluctant to sue the consultants for return of the high fees, without delivery the expected outcome.

In some cases in some countries, the high fees are paid to consulting firms on a "scratch my back and I will scratch yours" basis. But it may also apply in Singapore?

Parka said...

High prices should always be associated with high returns. "High" is a relative term.

The problem is companies might not be knowledgeable in how to use consultants effectively. A money-back guarantee clause should always be in effect. You can bet that consultants will not be the ones advising them to include this clause.

It's not that businesses don't want to sue or is embarrassed to sue, especially they can recover big sums of money. It might be they don't have any grounds to sue on.

Drizzt said...

it is true that consultation charges are high but that is just part of the equation. you are not being reasonable here.

much of the cost is from the employment of manpower and planning for the projects.

it is true that i find it wasteful but such is the nature of running projects.

oil rigs failed, building helicopters runs into difficulties, boustead also ran into difficulties in delivering projects. the list is endless. so is that a waste of time as well?

Ron E said...

Consultation fees being high is relative. Engaging a consultant is seeking advice and avoiding higher costs if you attempt some half past six method on your own.
The company may not have the resource to carry out simulated scenarios but a consultant can. This is what you pay for.
The time and the effort to study the issues involved.

Many companies feel dissatisfied after a consultant has completed the work because:

A) the objectives where ill defined
B) there was unrealistic expectations.
C) there was lack of commitment in the project

Be clear & committed in what you want and the process of consultation will be a pleasant and rewarding one.

Not all issues require consultancy.

Anonymous said...

I remember some years back when a utilities organisation changed its consumer billing system.

Guess what happened? Bills sent to some households increased by hundreds of times! From hundreds of dollars to tens of thousands per month!

One affected houseowner said that luckily he did not suffer a heart attack when he saw the bill.

In another incident, it happened shortly after POSB was absorbed by DBS, one resident received a postbag full of mail from DBS! All different names but with the same address which is his!

These are hilarious cases that came to light due to screw up IT projects because it involve the public directly.

What about those that do not involve the public directly and incur bigger losses and failures? Anybody knows?

Anonymous said...

Some professionals (eg lawyers, doctors) also charged or get paid at a very high price but does not guarantee a success in what they are doing.

Anonymous said...

Dear Mr Tan,

I have been involved in implementing IT Projects in the private sector since I started working 20 years ago. I am an Accountant by profession.

I have gone thru implementing many kinds of IT systems. I find implementing the simple ones have the best chances of success.

IT systems have come a long way since then. Modern IT systems is able to cater to a lot of requirements.

What is critical to the success of implementing IT systems is there must be a Project Manager handling the implementation full time. He must have enough experience implementing IT Projects and he must have approval to hire resources.

The Directors and the employees have an unrealistic expectation in implementing IT systems. They want the system to be able to do everything without lifting a finger because its a million dollar system.

This is in turn compounded by the IT Consultants promising almost everything can be done without managing customers expectation.

The IT Consultants charge their fees by project. So they will allocate a number of man hours to the project. If the project runs into difficulties, the IT Consultants will charge additional fees.

Another critical factor to the success of the project is the employees themselves. The question is are they willing to change their working habits and spent time to learn new skills to adapt to the system while also doing their job?

Thirdly, IT systems should be implemented by phases SLOWLY. This is so that the person working on the system has time to adapt to it.

Implementing every thing at once brings the risk of multi-million dollar failure.

This is because there is huge resistance to change on the part of employees.

The consultancy firms will be happy that the hospitals want to implement all at once bec it will bring them huge revenues.

They of course hope that their clients will succeed in implementing the system as it will bring them recognition.

No one wants to hire and pay mature workers who have hands on experience adequately and who can get the job done well.

Instead CEO's nowadays say pay the consultants WELL. IT Consultants are skilled in "Consulting and IT work". Not in actually implementing the system.

What is actually needed is a person in the Co. who understands IT, its strength and limitations, who understands the company employees and culture, what they can or cannot do and assist them and have adequate experience in implementing IT projects and have hands on experience utilising IT.

Tan Kin Lian said...

Hi 1:30 PM
Please contact me at kinlian@gmail.com

Joe Blog said...

There are some reason for the high fees for consultancy.

1. They can be hired when you need them. Which is to say you are paying a subsidized rate for their availability to standby without work until you need them.
2. The "high" price includes bonuses, insurance and CPF matching that you may not include in your normal calculation of a fulltime worker.
3. They are "supposed" to be experts in their fields.
4. They should need less micro management compared to contractors.
5. From a financial perspective, it is easier to account for the money spent for consultants to "revenue generating projects" then to put them in the operational costs for which you will need to explain why there is a need to maintain a higher long term operational cost for more fulltime workers.

TheOracle said...

Another major reason why IT project fails is lack of buy-in and committment from the higher management.

Without buy-in, old manual processes that needs to be tweaked or changed do not get support. Systems can't roll out properly or get roll out in an inefficient way failed to delivery and shortly after get rejected.

Without top-level buy-in and ownership, department heads refused to cooperate together or insist on choices that helps themselves at the expense of others. Project stalled and the blame is on the IT consultancy firm.

Without buy-in, business operation changed mid-way and render the automation process redundant and the blame game begins on who is the hold the cost of the project.

Without buy-in, the project manager in-charge within the company faces a difficult task and getting internal support and quit his/her job. The replacement staff can hardly do any good. The blame is placed on the IT consultant for failing to deliver.

Layman does not understand the difficulties that IT consultancy companies faces. If a skilled and qualified vendor is selected, chances of project failure is high that it lies on the customer side.

Anonymous said...

Here's my take on why these IT projects fail:
The consultants only discuss with top/senior management, and never bothered to talk to the operational and service people actually using the systems.
But as Dr. Goh Keng Swee pointed out, top mgt are not the ppl doing the actual job, but the operational ppl. Some top mgt only have vague idea abt the biz operations. Some top mgt don't even know IT and need secretaries to print out emails.


In the old days (i.e. 1990s), I remember the ang mo IT consultancies would talk to the operational/service ppl to understand the actual job and conduct end-user acceptance tests.

Anonymous said...

Sometimes, these computer projects are soooo focused on creating management control and creating restrictions on employees doing the operational work.. it makes it hard for operational workers to do work... and it degrades the customer experience and service level..

In such cases, a less expensive option may be to discard and write off the million dollar IT project, rather than lose customers or biz.. If a biz lose customers, they have to cut workers pay or retrench workers..

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